Jimbo

Doc You are right of course. I was only referring to recognition.

SO THE JETS FLY TO THE OMAHA GOLDEN CALF So now its all about plugging the regional bank solvency GAP ASAP!!!!!!!!! (Never mind if the FHLB had had the good sense to withdraw its billions in deposits form the regionals in March 2022 the banks would have been forced to sell their treasury portfolios and MBS to pay out the FHLB..... and not lost a cent on them....so no need for a bail out.......but that is a story for another time) So what is the golden calf... Uncle Warrens $150 Billion honey pot!!!!!!!!!!! Im sure uncle Warren is mumbling "Prefs and warrants prefs and warrants" in his sleep. Indeed warrants should be renamed warrens in his honour. However the prefs will still have the OXY conundrum .... ie. the high probability that the the prefs interest and capital gets inflated away by more FED printing. Unless the prefs get issued at a floating rate linked to the CPI!!!! (this is my suggestion to Uncle Warren.....and I dont even charge him a fat bankers fee for it).

THE PROBLEM IS ALWAYS THE LAG So the FED stoped printing in March 2022. And now....only in March 2023 do the depositors and shareholders of the banks realize the consequences of that small and simple action. A full 12 months later.

THE DURATION ALGORITHM The equation that applies to the regional banks right now is: Inflation + Duration Risk Mismatch = Chapter 11.

THE APPROPRIATE ANALOG What is the appropriate analog for the financial events to today. I think its the S and L crisis of the 1980's...... Where all the thrifts were squeezed between higher deposit rates and all their fixed low rate 30 year mortgages. Similarly we are having the great NIM (that's net interest margin for you financial ratio afficianados) ) squeeze for the regional banks Its not only the bonds and mbs they have on their balance sheet. Don't forget all the other fixed rate loans they have on their balance sheets. They will all have to be funded at higher deposit rates. There has been a great disturbance in the matching principal. Basically the banks went to sleep on duration risk management during ZIRP/NIRP and did not hit the panic button when the FED stopped printing in March 2022. In other words they actually believed the inflation is transitory propaganda. Bad mistake!!!!!!!!!! Regional banks profitability will be crushed.

THE BIG ROUND TRIP So all the hot money whale deposits go to the big four and...... The big four send them straight bank to the regional banks With a nice cut in the middle The FED loves this..... Why..... Because every dollar round tripped is a dollar the FED does not have to print!!!!!!!!!!! And they really dont want to print.... They are being forced too currenlty but they are reluctant printers. How does one spell half a pivot. (Note the FED printerama has created an unstable hot money "mass" which behaves in a wave like...tsunami....manner.) The scammers and fraudsters are desperate to attract this hot money mass to use as exit liquidity for their various greater fool asset scams.

THE BIGGEST BOND BUBBLE IN HISTORY Popped..... What did they think would happen..... No warning siren was sounded. And what was the false narrative from the mainstream financial media. "Higher interest rates will be good for banks" What was the narrative here.... "Look out below" This is what I call "The narrative differential"

THE CIRCULAR FIRING SQUAD First a little aside The best performing SP500 stock in 2022 was.....OXY. Will it be the best performing in 2023....of course not. Now onto something a little more important. The Circular FIring Squad 1/ The FED stops printing 2/. Inflation goes down...but not fast enough....it looks sticky.... 3/ The Banks have very large unrealised treasury and MBS bond losses..... 4/ The FED wants rates to go down so the Banks bond losses reduce to a managable size. 5/ But in the meantime the swap counter parties have large losses...how long can they remain solvent.... 6/ So the FED/SNB and probably other central banks have to prop them up...... 7/ How long they have to prop them up depends on the interest rates going down ...which depends on inflation.....which depends on the FED not printing to prop up the banks and swap counterparties and govenrment defecit spending. Its all so circular isnt it!!!!!!!

AS I SAID They should have never let signature and SVB go. The system is just too fragile. Now the Eccles Eclesiarch has to come out with the "Whatever it takes statement" The sooner the better. Its a complete and total mess,

THE BIG BANKS ARE HEDGED But who are they hedged with??? The losses do not go away!!!!!! They still have to be eaten by someone. They are very large ...too large What if they default on the hedges. What if the banks have merely hedged each other in a circular firing squad. AIG would have defaulted on its CDS if the government had not backstoped them to the tune of $120 billion. A similar scenario will play out for the intertest rate hedges. The problem remains. The Government will have to backstop the swaps.

WHO IS AIG?????? Who is AIG this time round???? Providing the role of insurer of first and last resort for all the bags???? Providing all the interest rate swap insurance to the Banks?????? Bet its not Goldmember. I can't but think the best candidates are Credit Swiss and Deutsche. The hint is in their share price charts.

THINGS ARE MOVING QUICKLY Plug pulled on Signature. Bank Term Funding Program (BTFP) rolled out. Now Big four on a more equal footing with the regionals. The Fear and Loathing Bank ETF idea now dead. But is could be repurposed Big four have $210 billion in unrealised bond losses. How about the Bank Fear and Loathing ETF shorts the big 4. BOA seems to have most of the losses.

THE OTHER BIG QUESTION Who is on the other side of the interest rate swaps with the banks providing the insurance against rate rises???? Whoever they are are bleeding big time. Great short candidates if publicly traded. An ETF idea????? Need a catchy name for marketing purposes. "The Swamped ETF"

THE REALLY REALLY BIG QUESTION Why didnt the FHLB provide the exit liquidity to keep SVB afloat???? It did for Silvergate (well for a while) and Sigature. Someone somewhere made a decision. And it was the wrong one.

THE BIG BENEFICIARIES The big four banks will be the big beneficiaries of all this. The Whale depositors will flee to them. They will have cheaper deposits and a stronger competitive position versus the regionals. Of course a deposit protection scheme that protects above 250K would level the playing field. (Particularly as the FHLB's seem to have withdrawn their implicit withdrawal guarantee....but it may still exist on a case by case basis) So probably lots of legislative fun and games about to commence.

A TALE OF TWO SISTERS There are two sisters 1/ The FHLB ....the rather attractive sister. 2/ The FDIC...the less attractive sister. When a bankster gets into trouble they have to dance with one of the sisters. They all want to dance with the FHLB. Because they get to live...perhaps not happily ever after..... but they get to live. If they have to dance with the less attractive sister they get liquidated. Silvergate bank got to dance with the FHLB. But then suddenly the FHLB did not want to dance with it anymore. Result....dance with the FDIC and liquidation. SVB never got to dance with the FHLB. Only a dance with the FDIC....liquidation. Signature bank is still dancing with the FHLB Lucky them. But for how long?????????? The FHLB is getting rather fickle with its choice of dancing partners. Without the implicit FHLB withdrawal gurantee. The deposit whales are going to develop a bad case of itchy feet. They will flee to the systematically important banks. Who's stocks will outperform the regional bank stocks on a relative basis Sounds like a good idea for a long short bank fund. A good ETF idea It needs a catchy name for marketing purposes of course....... How about the "Fear and loathing bank ETF"

THE BANKS REAL PROBLEM The problem is no so much the banks bond losses. They can hold them to maturity. The problem is that they will have to fund these low yielding assets for a long time with more expensive short term deposits. So the Banks will be in a negative free cash flow situation. Not good for their stock prices. Lots of capital raisings and mergers coming up.

YES AND NO...THE STRANGE CASE OF US GOVERNMENT DEPOSIT GUARANTEES Technically correct doc as far as it goes...the explicit guarantee for $250,000 But There is another implicit deposit guarantee provided by the Federal Govenment Indirectly through the FHLB's You will notice that the FHLB's will bail out a bank experiencing a deposit run by depositing money into them equivalent to the run. But it appears that the FHLB will require the bank to run down its liquid investments first to pay out the depositors...hence all the realized bond losses being revealed by the banks - a forced reveal. See Silvergate, see Signature bank The FHLB's are basically providing exit liquidity..... Providing a withdrawal guarantee for the deposit Whales It is implicit...but it exists in reality. And that is all that matters. I should have mentioned this in my original post.

THE HIDDEN BANK BOND LOSSES IN PLAIN SIGHT Answer Unless you were short any bank stocks .... just a warm fuzzy feeling and perhaps a few more subscribers. Thats why the equation: Knowledge + Capital + Action = Happiness Is so important. However what amazes me is how long the market took to cotten on to the blindingly obvious. The lag between the knowledge and the action was a rather long one. Also no body seems to be thinking about Insurance companies ...which are ofter big bond holders. A timely article about the impact on insurers would be very useful.

A GREY RHINO IN PLAIN SIGHT The bank bond losses are a classic grey rhino...... In plain sight but ignored by markets..... Until they cannot be ignored...... When Silvergate was forced to sell their bonds when their crypto depositors made a dash for the door... (Note the whale traders who deposited thier funds with Silvergate actually had a brain....they kept there money in Silvergate......all insured by the FDIC rather than leaving it in FTX.....which was insured only by trust in SBF...a very bad strategy indeed) They had to recognise a cool billion loss.... And they are just a small bank. Think of the losses in the larger ones....

MORE ALTRIA MADNESS Altria about to throw away 3 Billion on some vaping outfit They have already thrown away $15 billion on Juul and Chronos. What is it with these guys...... They should be doing: 1/ Spending the money on buybacks and dividends. 2/ They should also distribute the Anheuser stock to shareholders. 3/ They should have really debted up the company with cheap long term debt in 2019/20 and used the debt raised for 1/. If they had done these things the market cap would probably be double what it is now.

SARGENT SCHULTZ WAS THE ULTIMATE SURVIVOR He knew much while pretending to know nothing. A good survival mechanism is an age of constant falsehood. The AI Chatbot was obviously designed to tow the party line. Onto something a bit more interesting..... Uncle Warren's 2022 letter to shareholders. Yet again Uncle Warren commits numerical slight of hand worthy of any broken down old carny magician. The table of annual returns is not inflation adjusted. Making a sad mockery of the performance numbers. However I must applaud him for monetizing the FED put. The FED was providing a vast equity put for free during 2009-2021. But of course the put was "implicit". Much like the implicit treasury guarantee of Fannie and Freddie. So what did Uncle Warren do.... He monetized it by selling "explicit" equity puts for billions. All the time relying on FED's implicit equity put so as not to lose. Arbitraging between the visable and the invisable. Money for nothing....absolutely brilliant.

SO ALL THE GARBAGE WENT UP A real garbage rally Anyway........ What is there to say Gas looks very cheap....interesting Nothing goes down forever....... There's always a pivot lurking in the divot.......

VERY STRANGE BOND CURVES Something does'nt add up.... Why is the treasury curve inverted whilst the corporate and municipal curves are not????????? Strange just strange Someone is playing games.......

WHEN NARRATIVES DIE Reading great book "Narrative Economics" by Robert Shiller. Crypto is a dying narrative..... As all the dumb money gets drained away..... So onto the next false narrative....... Onto the next "magic box that will make you rich but you can never open it or the magic will disappear" (hmmm this sounds like a good Hans Anderson story !!!}